Pharmaceuticals have long been seen as an industry whose best days are past. New drugs blockbusters seem fewer and further between, with a constantly diminishing return from innovation. And the current blockbusters seem to be hurtling over the edge of the infamous ‘patent cliff’.
Is pharma really an industry in decline?
As profits lost from patent expiries overtake the profits gained from new drugs, Big Pharma seems to be an industry in decline.
Because of this apparent malaise in the industry, share prices have fallen to bargain levels. Yet, let’s dig a little deeper. Is pharma really an industry in decline? Not in my eyes.
The global population is steadily increasing, and the world is aging. As emerging and frontier markets boom, the new middle classes will spend more and more of their income on healthcare, and particularly on drug treatments.
The boom in healthcare technologies
But surely most of the drugs bought these days are off-patent and thus cheap? I think you underestimate the ingenuity and creativity of mankind. As the boom in chemical drugs draws to a close, we have instead a boom in biologics, as the worlds of pharma and biotech collide.
That’s not to mention the explosion in genetic technologies, the growth in stem cell science, and myriad other medical technologies. As the pharma industry invests in these areas, they will find a range of ways of advancing global healthcare.
That’s why the pharmaceutical industry has been one of the contrarian picks of recent years. Finally, finally, the market seems to have woken up to this. In recent months, the share prices of British drugs giants GlaxoSmithKline (LSE: GSK) and AstraZeneca (LSE: AZN) have broken out of their trading ranges and are climbing steadily higher.
The fightback is on
I hold GlaxoSmithKline as I feel this is the pharma company that really has cracked innovation, and the proof of this is its buzzing drugs pipeline. I would say that AstraZeneca is also a worthy investment, with chief executive Pascal Soriot settling down to the weighty task of turning around this drugs titan.
Pharmaceutical company share prices are surging, and I suspect they will climb higher. Pharma really is fighting back.
Neil Woodford was one of the few fund managers to see the contrarian opportunity that was the pharmaceutical industry. He could see that Big Pharma was incredibly cheap, and that fears over its decline were overplayed. And his bet on the pharmaceutical industry is now paying dividends.
Want to learn more about the contrarian maestro’s recent share picks? Then simply read our free report by clicking on “The FTSE Shares That Britain’s Super-Investor Owns”.
> Prabhat owns shares in GlaxoSmithKline.